European Politics

A somewhat different take on matters Hayekian – Martin Höpner and Armin Schäfer’s “article on Hayek and the EU”:http://journals.cambridge.org/action/displayAbstract?fromPage=online&aid=8638234&fulltextType=RA&fileId=S002081831200015X has just come out in _International Organization._ It’s been in gestation for a while (an earlier working paper version can be found “here”:http://www.mpifg.de/pu/mpifg_dp/dp10-8.pdf), but the argument is pretty straightforward – if you look at it right, the European Union looks rather more Hayekian than Polanyian-social-democratic.

bq. Instead of re-embedding markets, the EU is beginning to resemble Hayek’s blueprint of “interstate federalism,” where individual (economic and social) rights are located at the central level while the capacity for taxation and interpersonal redistribution remains entirely decentralized. What appears to be the nucleus of supranational social policy might turn out to be a recipe for less social protection and redistribution at the national level. … by granting non-nationals access to social transfers while being unable to oblige them to contribute financially puts pressure on the generosity given to all entitled persons. As economic liberals have aptly observed, divorcing rights from obligations limits the capacity for redistribution. … political initiatives to re-embed markets have become extremely difficult as EU members have grown ever more economically diverse. At the same time, integration through law (as opposed to political integration) continues apace and limits national governments’ ability to correct markets.

This article stems from a broader left-skepticism about the EU associated with people like Fritz Scharpf and Wolfgang Streeck (uncoincidentally the former director and director of the Max-Planck Institut where Höpner and Schäfer are based). Its argument is open to challenge but is also, at the least, highly plausible. Nonetheless, it’s the kind of argument that gets very little attention in the US, where, broadly speaking, leftists are in favor of the EU, and rightists (especially Hayekians and libertarians) against it. Much of this surely has to do with the tribalism that John Q. was talking about last week – a lot of US intellectual politics is based on affect. But it also suggests that the EU is a different kind of experiment than most Americans believe. If the EU manages to weather the tempest that still threatens to swamp it, and comes out the other end with a currency union, a banking union, and some kind of bond system, it will still look, as Höpner and Schäfer suggest, very Hayekian. Will it be politically sustainable over the longer term? I suspect not – increasing misery at the national level as a result of increased exposure to international exposure, combined with a withering of social protections will create the kind of political upheavals that Polanyi described (whether with happy, or unhappy consequences). Polanyi’s ideas suggest that Hayekian federal constitutionalism is almost necessarily self-undermining. But of course, Polanyi could be wrong …

It’s getting pretty exhausting living inside the Eurozone. We screw up our nerves for the next moment of crisis, which is narrowly averted, only to find that the same old problems lie in wait just around the corner; but worse this time, because they were’t properly sorted out the first time.

Last week’s worries were put to rest for a short while: Greece is still in the Eurozone, the Euro hasn’t imploded, the banks are still open. Spanish banks teetered; a fix was found for the time being. But it doesn’t mean anything has been solved, and the moments of respite get shorter and shorter.

It seems to me that we’re strung out on Dani Rodrik’s trilemma of global politics in an increasingly dangerous way. His contention is that you can only have two of these three things:

‘hyper-globalization’ (in the EU context, the free market in goods and services and mobility of capital and labour);

‘national sovereignty’ (in which national governments have realistic choices to make between options that may be ideologically quite distinct);

and ‘democratic politics’ (in which there is meaningful involvement by actors and electoral accountability for decisions made).

Kevin O’Rourke (whose work I’ve mentioned here before) pointed out that the odd design of the Eurozone was meant to avoid it getting definitively boxed into any two options in this triangle. Trans-national oversight of the currency was delegated to the ECB. Nation states were charged with making fiscal and financial policy within a loose-ish trans-national framework of rules. Democratic debate was expected to internalize the requirements of pooled sovereignty.

But the sharp ends of the trilemma are becoming more and more difficult to span. The fuzzy compromises are under growing strain, and the Eurozone is being pushed into classic trilemma trade-offs. It’s at growing risk of ripping apart entirely.

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I’ve blogged about this before, but the UK Coalition government’s proposals to restrict the immigration of spouses of British nationals just came a step closer to being enacted. Though packaged as a measure against forced marriage, this is a proposal that will drive into exile or separation many people whose personal income falls below the £25,700 threshold and who happen to have been unlucky enough to fall for a non-EU citizen. Sheer evil. The Guardian:

bq. British citizens with foreign-born partners are to be given the choice of indefinite “exile” in countries including Yemen and Syria or face the breakup of their families if they want to remain in the UK, under radical immigration changes to be announced next week, MPs have been told. The home secretary, Theresa May, is expected to confirm that she will introduce a new minimum income requirement for a British “sponsor” without children of up to £25,700 a year, and a stringent English speaking test for foreign-born husbands, wives or partners of UK citizens applying to come to live in Britain on a family visa. Immigration welfare campaigners say that the move will exclude two-thirds of British people – those who have a minimum gross income of under £25,700 a year – from living in the UK as a couple if they marry a non-EU national. They estimate that between 45% and 60% of the 53,000 family visas currently issued each year could fall foul of the new rules.

It is hard to have any hope that the Liberal Democrats might decide this is a line they cannot cross, but they have to be put under pressure. People have to write to their MPs of whatever party and make their disgust known, as well as trying to get the Labour Party in the shape of Chris Bryant and Yvette Cooper to take a stand (rather than trying to be more nationalist than the Tories). I wonder also whether the academics who are members of the UK Border Agency’s Migration Advisory Committee shouldn’t be being asked tough questions by their academic colleagues and urged to resign.

“Five years ago”:https://crookedtimber.org/2007/05/11/rupturerapture/ I linked to a “Bill Emmott column”:http://newsweek.washingtonpost.com/postglobal/bill_emmott/2007/04/not_decline_but_rupture_with_t.html on the impending election of Nicholas Sarkozy thusly:

This unashamed mash note from Bill Emmott, former editor of the Economist presents a class of a triple-distilled tincture of the prevailing globollocks on Sarkozy’s victory in France. You don’t need to read the actual column to get the gist; just the Pavlovian dinner-bell talking points that it strings together.

France … paralyzed by powerful interest groups … political elite … beholden … or … afraid … takes a brave outsider … precisely Sarkozy’s appeal … Reagan or a Thatcher … A “rupture” is what France needs … showing that his country is not doomed to decline … cadres of highly globalized managers … etc … etc

I don’t see the words “tough,” “clear-headed,” or “reform” anywhere, so it isn’t quite the full bob major, but it’s close.

Now, his successor as editor at the _Economist_ “plays the same tune again, but even more crudely”:http://www.economist.com/node/21553446, deploring Sarkozy’s probable successor.

bq. France desperately needs reform .. .neighbours have been undergoing genuine reforms … deep anti-business attitude … proposing not to reform at all … refusal to countenance structural reform of any sort … resistance to change … hostile to change … Until recently, voters in the euro zone seemed to have accepted the idea of austerity and reform. … would undermine Europe’s willingness to pursue the painful reforms it must eventually embrace.

I’ve no idea what Hollande is going to be like (except that he’s certainly going to be disappointing). But I do know that this is one of the most exquisitely refined examples of globollocks that I’ve ever seen. It’s as beautifully resistant to the intellect as an Andropov era _Pravda_ editorial. A few more years of this and the _Economist_ won’t have to have any human editing at all. Even today, I imagine that someone with middling coding skills could patch together a passable Economist-editorial generator with a few days work. Mix in names of countries and people scraped from the political stories sections of Google News, with frequent exhortations for “Reform,” “toughminded reform,” “market-led reform,” “painful reform,” “change,” “serious change,” “rupture,” and 12-15 sentences worth of automagically generated word-salad content, and you’d be there.

I wonder whether even the writer of this editorial would be able to define ‘reform’ or ‘change’ if he were asked, beyond appealing to some sort of ‘social protection bad, market good’ quasi-autonomic reflex embedded deep in his lizard brain. I also wonder whether the people in there are as cynical about their product as Andropov-era journalists were, or whether they actually believe the pabulum they dish out.

Here’s a nice profile in the Guardian of my colleague Dave Brady, who was in London recently talking about poverty and social policy:

Brady’s response is that we need to rebuild trust in a welfare state that everyone feels they benefit from. The problem he sees developing in Britain is similar to the situation that exists in the US, where welfare is now only for the very poorest people.

“The more [that] ‘welfare’ is a broad portfolio of social policy to help people across the life span, the more effective it is at reducing poverty,” he explains.

“If you create a small constituency of beneficiaries that doesn’t have broad-based political support, it’s harder to mobilise in support of those benefits.”

For evidence, Brady points out, look no further than the ease with which the welfare reform bill got through parliament compared with the ferocious fight the coalition government has had to get the health bill on to the statute book.

Unluckily for me, Dave will soon be heading off to Berlin to be a director at the WZB, despite the city’s near-total absence of quality baseball.

From David Marsh’s “book on the origins of the euro”:http://www.amazon.com/gp/product/0300176740/ref=as_li_ss_tl?ie=UTF8&tag=henryfarrell-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0300176740, some indication that the last few years of gold standard lunacy were baked into the cake from quite early on.

bq. The two leaders [Giscard d’Estaing and Helmut Schmidt] professed the common aim, at a wider European level that superseded national borders, to regain monetary stability forfeited through a century of war and disruption. According to Giscard, the road to a European money was part of a journey that had been abandoned when the Gold Standard ended:’During the second half of the nineteenth century, up to the 1914 war, France enjoyed continuously successful economic growth, and a steady build-up of its engineering industry, with a currency that was totally stable. With their roots in a rural economy and their cultural leaning towards the fundamental values of savings and thrift, the French as a nation cannot cope with an inflationary economy and a weak currency. They thrive on stable money.’ Schmidt, too, affirmed a link between the goal of EMU and the Gold Standard:’We had a currency union up to 1914 in Western Europe – the Gold Standard. From a historical point of view, I would draw a direct parallel.’ (p.69)

Subtitle: Frank McNally is a Genius

This is too good to just post a link to on FB or Twitter or even that Tumblr I started with such earnest hopes for the unleashing of my strangely bounded creativity. In a column worthy of the Irish Times’ old contributor, Myles na Gopaleen, Frank McNally lists the History of Ireland in 100 Excuses.

It’s almost impossible to cherry-pick because half of the fun is the cumulative effect, and the other half is they’re so damn funny. Still and all:

1. Original sin.

3. The 800 years of oppression.

9. It was taught badly in schools.

10. The Modh Coinníollach.

25. We only did it for the crack.

72. I must have had a bad pint.

80. The money was only resting in my account.

86. The banks were throwing money at us.

90. The Welsh just seemed to want it a bit more than we did.

As they say, words to live by. My sister Eleanor suggests we use it as the rough draft of our next report to the Troika.

“This column”:http://www.bloomberg.com/news/2012-01-11/europe-learns-from-u-s-so-why-not-vice-versa-commentary-by-clive-crook.html by Clive Crook today:

bq. Democrats therefore find themselves having to deny the obvious. Obama wants to make the country more like Europe? Ridiculous. A straw man. But it isn’t ridiculous. What’s ridiculous is the idea that Republicans take for granted and squirming Democrats tacitly endorse — that making the U.S. more like Europe would be a disaster. … The biggest step the U.S. needed to take in Europe’s direction, and the longest overdue, was health-care reform. The Affordable Care Act is a start. … Obviously, political cultures differ in deep ways, so there will never be One True Capitalism, right for everybody. … Still, Europe’s biggest economies all reflect a social- democratic tradition that puts more emphasis on collective provision and the guiding hand of government than seems natural in the U.S. The American political tradition stresses the rights and responsibilities of individuals; it exalts private enterprise and almost celebrates risk. These are choices that countries should be free to make.

bq. … Europe’s politicians looked at the U.S. and decided they needed, among other things, more American incentives and more American creative destruction. … They said so explicitly: Unlike their U.S. counterparts, they weren’t embarrassed to point to the other model. … On the other hand, Europe can teach the U.S. a thing or two about social insurance — and not just in health care, the most egregious failure of the American economic model. Help for the unemployed has traditionally been ungenerous in the U.S. … Republicans might also ask whether America is living up to the merit-society ideal. … In America, land of opportunity, if you are born poor, your chances of staying poor are higher than in Europe. The trade-off between economic vitality and economic security cannot be eliminated. But its terms can be improved in the U.S. and Europe, if each pays closer attention to the other.

presents a “striking contrast with this one”:https://crookedtimber.org/2009/03/11/let-us-rally-to-protect-the-delicate-flower-of-rugged-individualism/ from three years ago.

bq. Where has France gone too far, in the view of an American liberal? … Presumably, liberals approve of the universal health care, the generous and extensive welfare state, the comprehensive worker protections, the stricter regulation, the vastly more-generous subsidies for higher education, the stronger unions, the higher taxes, and especially the higher taxes on the rich. … Perhaps some liberals privately long to make the United States over in the image of France, but the great majority, I imagine, are more interested in taking the things they regard as best in the European economic model—all the things I just listed—and combining those “socially enlightened” policies with the traditional economic virtues of the United States. Take French social policies and welfare-state institutions and add them to the American work ethic, spirit of self-reliance, and appetite for change. Et voila, the best of both worlds. Color me skeptical. Culture shapes institutions and vice versa. Culture—that bundle of traits of self-reliance, self-determination, innovation, and striving for success—underpins the American exception. … In ordinary times, this culture makes it hard for a government to push the United States in a European direction … it would be an error to assume that the policy transformation that some liberals long for—and which Obama, if his budget is any guide, appears to be aiming for—would leave America’s unusual cultural traits unaffected. … the American exception is alive and well, and that it is more than likely the secret of this country’s awesome success. … I would need to think long and hard before casting it for “transformation.” Repairs here and improvements there, of course, but transformation? It would be a shame to see America revert to the Western European norm.

NB that I am noting, not criticizing, this apparent change of heart. People have different attitudes to returning prodigals. Except in the case of continued rank hypocrisy, I’m by and large in favor of killing the fatted calf (or at the least, keeping it nicely plump in the hopeful anticipation that the change will stick).

Two months ago, I wrote a post which argued, among other things, that the European Union used to be run according to the ‘Community Method’ (according to which member states often used to defer to each other on matters of vital interest, and the Commission had an important role), had moved to the so-called ‘Union Method’ (under which member states were supposed to do stuff on their own, in practice being led by France and Germany), and was now transitioning towards the `ECB Method’ (under which the European Central Bank determined politics). I suggested that this was going to be untenable, and hoped that we might see a push instead towards greater democracy. Well, we didn’t get one. Instead, what we’re getting is the ECB method on steroids. By supporting bank borrowing rather than sovereign state borrowing, the ECB has managed to prop up the system without openly changing its mandate. But by doing this under the table, and without very much in the way of an officially stated long term policy, it has retained and indeed arguably dramatically expanded its political clout.

I don’t have sufficient expertise to make strong claims about whether this will be a sustainable way of propping up bond markets for any significant period of time. What I am convinced of is that it will be a political disaster. As Cosma Shalizi and I argued (Cosma puts it “much better”:http://cscs.umich.edu/~crshalizi/weblog/838.html than I did) about libertarian paternalism, the problem is that it “break[s] the feedback mechanisms which (1) keep policy-makers accountable to those over whom they exercise power, and (2) allow[s] policy-makers to tell whether what they are doing is working, and revise their initial policies and plans in light of experience.” This dynamic can be extended to explain why the European Central Bank is making a complete hash of the European economy. I’ve spoken to people at the European Central Bank – they are very smart, and very sincerely believe that the best path to long term prosperity is through enforced austerity. They are also – by design – nearly completely insulated from democratic pressure. And despite claiming that they are apolitical, they are in fact playing a profoundly political role, dictating the kinds of domestic institutional reforms that states need to implement if they want to continue getting ECB support.

This means that ECB decision makers are under no very great obligation to think about why they might be wrong, up to the point where complete disaster occurs. And disaster is very likely, if the lessons of the gold standard in pre-World War II Europe tell us anything at all. Enforced austerity does not produce economic growth. What it does produce is political instability.

This is why we should be deeply skeptical of claims for technocracy as a way of making political decisions. Technocracy is supposed to work better because it is insulated from political pressure. But exactly because of that, it is liable to go off the rails when left to its own devices. Expertise is a very good thing – when it is leavened by democratic accountability. When it is not, it is likely to be responsive instead to its own internal discourses and understanding of the world, which can lead it in some very problematic directions. It isn’t just that the eurozone is an experiment in the economic virtues of imposed austerity (as a means of creating confidence and hence a by-its-own-bootstraps cycle of virtuous growth). It’s that the experiment is already visibly failing. And it’s that despite this visible failure, there is little chance of any reversal of direction, because those who have the power to set the course have no obligation to listen to anyone else, and hence aren’t listening.

David Cameron’s use of the veto in the recent EU summit opens an era of deep uncertainty (and possible catastrophe) for British and European politics. Two things seem to be true: Cameron is an incompetent opportunist in thrall to his backbenchers and the proposed treaty is a disaster for the Eurozone countries themselves. The fact that it is a disaster (a fact recognized by Francois Hollande’s declared intention to renegotiate) might seem to give some support to Cameron. But of course it doesn’t, since the remaining 26 countries will just go ahead without the UK. All Cameron has done is isolate and exclude himself. As one MEP is reported as saying today, “If you’re not at the table, you’re on the menu.”

Cameron vetoed the proposed EU treaty on the basis, or pretext, that other countries wouldn’t agree to “safeguards” for the City of London. The reason he was asking for these was essentially just because his backbenchers had demanded he show the “bulldog spirit” and, since EU treaties need unanimity, he thought he could extract some symbolic gain to satisfy them. He didn’t clear this with Merkel or Sarkozy in advance and would have been inhibited in doing so because the British Tories withdrew from the mainstream Euro conservative grouping in order to hob-nob with a bunch of extreme nutters and anti-semites. Sarkozy, who wanted a more integrated core Europe without Britain in any case, took the opportunity to call Cameron’s bluff. All very good for Sarko in the run-up the the Presidential elections. Exit Cameron stage right, claiming to have stood up to the EU – and getting praised by the UK’s tabloid press and an opinion-poll boost – but actually exposing the City to further regulation under qualified majority voting. He’s also chucked away decades of British policy which favoured EU expansion with the new accession countries serving as a counterweight to the Franco-German axis. Where are the other countries now? Lined up with the French and Germans.

The Euro treaty itself, assuming it goes ahead as planned and is enforced, mandates balanced budgets and empowers the Eurocrats to vet national budgets and punish offenders. Social democracy is thereby effectively rendered illegal in the Eurozone in both its “social” and “democracy” aspects. Daniel put it “thus”:https://crookedtimber.org/2011/12/09/euro-kremlinology/comment-page-2/#comment-391547 :

bq. a takeover of Europe by the neoliberal “permanent government” who failed to get their way by democratic means. All of the nationalism and anti-German sentiment is a distraction from the real scandal here. The ‘technocrats’ (which is apparently what they want to be called, although frankly I am seeing a lot of ideology and not much technical ability) want to reorganise the whole of Europe on neoliberal lines (ironically, to basically replicate the Irish economic transformation

One might think, then, that the left should be happy to be well away from it and that Cameron has inadvertently done us a favour. However, the short-term consequences in British politics could well be awful. My worst-case fantasy scenario has Cameron calling a snap General Election on nationalist themes, getting a majority dominated by swivel-eyed propertarian xenophobes and dismantling the welfare state, the Health Service, the BBC etc. Riots and civil disorder would be met with force, and those driven to resistance or crime would be incarcerated in giant new prisons. The Scots would then, understandably, opt for independence, and England and Wales would be left at the mercy of the crazies for several decades. Texas-on-Thames, in short.

And Nick Clegg? Well I wonder if even Daragh McDowell will make a case for him now.

Understanding developments in the European crisis has become rather like Kremlinology, trying to figure out the meaning of subtle changes in wording, and rearrangements of the Politburo on the podium for May Day parades. In particular, Mario Draghi of the ECB goes back and forth, sometimes suggesting that the ECB will do what nearly everyone else can see is minimally necessary to the survival of the euro (namely, print lots of them, and use some to buy EU government debt, as was done by the Fed and the Bank of England). At other times, though, it’s as if Jean-Claude Trichet is doing a ventriloquist act.

In one respect, todays EU agreement was anything but subtle. The fact that the Eurozone countries and those aspiring to join them were prepared to go ahead without the UK (and a few others) suggests that they have something serious in mind. But what – the announcement is pretty much a restatement of the Growth and Stability pact, and under present circumstances, the deficit targets can only be seen as aspirational.

Applying one of the approaches that used to be standard in Kremlinology (not necessarily a reliable one, then or now) I’m going to assume that the EU leaders are acting with some sort of coherent goal in mind and work from there. In particular, I’m going to assume that everyone who matters now recognizes the need for a big monetary expansion and the use of newly created money to resolve, or at least stabilize, the debt crisis. [click to continue…]

That’s the name of the new government of Belgium, inaugurated yesterday, which got off the ground after fivehundredfourthyone (that is: 541) days of negotiations (mind you: that number is written in Globish, not Oxford English). Elio di Rupo, leader of the Francophone social-democrats, had been trying to form a coalition for quite some time, but whether by coincidence or not, soon after Belgium’s credit rating worsened about 10 days ago, the agreement between the 6 negotiating parties quickly emerged. For those of you thinking that 6 parties make a government unworkable: a 6-party coalition is not unusual for Belgium. In fact, until quite recently this would be better formulated as 3 ‘party-families’, since it was assumed that the ideological line (being green, liberal, Christian-democrat or social-democrat, for example), was overwhelmingly more important than the linguistic identity of a party. But those days are gone, which means that we now do have 6 parties, rather than 3 party-twins.

I haven’t been following the coalition negotiations in detail, so mainly want to open up space for those of you who want to discuss whatever you want to discuss regarding the new coalition. Just three brief observations below the fold.
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My review-essay of David Marquand’s book on Europe (Powells, “Amazon”:http://www.amazon.com/gp/product/0691141592/ref=as_li_ss_tl?ie=UTF8&tag=henryfarrell-20&linkCode=as2&camp=217145&creative=399373&creativeASIN=0691141592 (deprecated))is up at the _Nation_ (paywalled version “here”:http://www.thenation.com/article/164749/zoned-european-union , unpaywalled PDF “here”:http://henryfarrell.net/farrell.pdf). It pulls the usual US review-essay trick of being as much about the arguments of the reviewer as of the author (however, since Marquand and I agree on the major issues, it should be less annoying than it sometimes is). I use Marquand’s book to talk about the ways in which technocracy has become the EU’s default mode of policy-making, and the political problems that this creates. Paul Krugman “wrote”:http://krugman.blogs.nytimes.com/2011/11/11/crat-me-no-techno-continued/ a couple of weeks ago that:

bq. It’s a dubious idea to supplant democratic governance with allegedly non-political management even in the best of times. But to assign authority to unelected men whose actual record suggests that they govern based on prejudices rather than analysis is even worse.

and then went on to write a “column”:http://www.nytimes.com/2011/11/21/opinion/boring-cruel-euro-romantics.html about the incompetence of the current shower of technocrats. My piece is about the other part of this argument – the sorry consequences of “supplanting democratic governance” with “allegedly non-political management.”

bq. _The End of the West_ was written before the deficit crisis (HF – it actually was finished at the beginning of the crisis – this is an editing artefact which made it through). Nonetheless, it provides a crisp and relevant analysis of the difficult choices that Europe faces. As Marquand says, the current crisis involves the “revenge of politics over economism.” Europe is caught in a “no-man’s-land between federalism and confederalism — and between democracy and technocracy.” Because they could not get the politics right, European leaders left the politics out, hoping that the usual gradual accretion of policymaking authority would provide an acceptable substitute.

bq. This was a grievous mistake. Yet the EU’s efforts to fix it have been as riddled with hedges as was the original arrangement for economic and monetary union. Europe’s richer states want the deficit problem to go away, but they are not ready to make the necessary fundamental political commitments. They have tried to obscure this lack of commitment in various ways, but the illusion is wearing thin. More hedging will not work. Markets need the certainty of politically credible guarantees if they are to be genuinely reassured. Politically credible guarantees require that European governments come clean with their citizens about the need for new arrangements.

(Thanks to Eric Rauchway for a great and apposite “Keynes quote”:http://edgeofthewest.wordpress.com/2011/10/25/what-if-and-so-what/ which I repurposed for the review).

A bloggingheads between me and “Yanis Varoufakis”:http://yanisvaroufakis.eu/ on the eurozone crisis. It’s more of an interview (of him) than a conventional dialogue. I do try to be slightly less pessimistic – he does his best to bring me down (and as it transpires, all his predictions about the Germans shooting down the Commission’s proposal for a eurobond etc were vindicated within a few hours.